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NBER International Seminar on Macroeconomics 2007

  • Economics


Capital Flows and Asset Prices [with Comments] This PDF is a selection from a published volume from the National Bureau of Economic Research Volume Title: NBER International Seminar on Macroeconomics 2007 Volume Author/Editor: Richard Clarida and Francesco Giavazzi, organizers Volume Publisher: University of Chicago Press ISSN: 1932-8796 Volume URL: Conference Date: June 15-16, 2007 Publication Date: January 2009 Chapter Title: Comment on "Capital Flows and Asset Prices" Chapter Author: Andrew G. Haldane Chapter URL: Chapter pages in book: (217 - 223) Comment Andrew G. Haldane, , Bank of England What Does the Model Tell Us? This paper tackles the public policy question: when should a country liberalize its capital account? This is among the most important public policy questions in international macroeconomics today. So that is the first desirable feature of the paper. There is a voluminous literature that has attempted to answer this question, which is surveyed in Kose et al. (2006). The vast majority of this literature is empirical. So the fact that this is a careful, theoretical treatment is a second nice feature. Of the theoretical papers addressing this question, the majority focus on the short-run dynamics of the economy following liberalization - the transition paths of, for example, output and asset prices. This paper allows an assessment of both those short-term dynamics and of the long- run equilibrium growth path of an economy, through endogenous ad- justments in total factor productivity (TFP). These TFP dynamics de- pend in turn on the allocation of production between the productive and unproductive sectors. Long-run TFP effects have been little studied in the literature to date on capital account liberalization. Indeed, some authors have suggested that a consideration of TFP effects is little short of essential when estab- lishing a positive case for

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